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How do expenses reduce my tax liabilities?

Keeping track of all your business expenses will allow you to offset the cost of business essentials against your Corporation Tax bill, so you can save a little money while you spend it.

When you put an expense through the business, as long as it is an ‘allowable’ expense, you can offset 20% of the expense against your Corporation Tax. In essence, your Corporation Tax bill will be reduced by an amount that is equivalent to 20% of the expense.For example, if you incur a business expense of £100, your Corporation Tax bill will be reduced by £20.The Corporation Tax deduction is not applied until the end of your Corporation Tax period so you may have to wait a number of months before you can realise the benefit. However, not all business expenses are what is termed ‘allowable’ or ‘deductible’. A business expense is any expenditure that is “a wholly, exclusively and necessary expense” incurred by the business for its performance of day-to-day duties.

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